February 2015

CSR

Ensuring social investments in mining creates value for local citizens and companies

By
Rohitesh Dhawan

Mining companies around the world invest large sums of money into social initiatives like infrastructure, education and training, health care, and sports
and recreation. However, the current approach to social investment does not maximize the return for the company or the community they are trying to serve.
Companies therefore need to rethink their approach to social investment at every stage of the process.

In 2014 KPMG surveyed 10 metals, mining and engineering companies with combined social investments of US$1.2 billion. Just four of them published a
detailed social investment strategy, suggesting that these companies may not have clearly defined their objectives when they invested in these initiatives.
Without a detailed business plan at the beginning of the process to clearly define goals, money is at risk of disappearing into a black hole marked
“charitable contributions.” Furthermore, our report analyzed a total of 52 different types of programs across the group surveyed. The wide variety
indicates that these companies may have spread their efforts too thin rather than focusing on a few priorities that can really make a difference. More
money and more beneficiaries do not necessarily translate into greater impact.

Once programs have begun, they tend to suffer from ill-defined key performance indicators and a lack of professional performance management. Rewards are
often linked to activity rather than outcomes; project teams can thus lose sight of the true goals of a project. Resources that flow into the actual
program tend to be scarce, with little, if any, being directed toward targeted and value-added monitoring.

Inadequate data reporting on the progress of the project is another issue. Project management best practice suggests that around five per cent of the total
budget should be spent on tracking and reporting results. However, only one of the companies surveyed reported any quantified outcomes resulting from its
initiatives.

When considering options for social programs, the starting point should not be the monetary investment in the project but rather the goal to be achieved.
Clearly define the problem you are trying to solve and the change you wish to see. Beginning at the board level, the strategy has to be aligned with local
development plans as well as wider business goals. Companies should invest in programs designed to produce the maximum benefit for the target groups and
the mining organization. For example, investment in local farm sourcing can cut the cost of food, leading to a healthier, more energetic workforce, while
education and counselling on alcohol and drug abuse could reduce absenteeism.

Administrators who are eager to score political points may also influence program choices. Ribbon-cutting events, such as the opening of schools, hospitals
or roads, can make a big impression on voters but do not always bring the best return on capital outlay. A less glamorous, cheaper option – like teacher
training or safe sex education – could potentially have a far greater positive effect, although it may have a less tangible impact on the company’s
reputation in the short term. Those responsible for allocating social investment budgets therefore need to exert a stronger influence over the
organizations involved in prioritizing programs by engaging earlier with local economic development forums and other groups and resisting demands for
vanity projects.

It is equally important to play a long game, avoiding quick wins in favour of deeper partnerships with the community, local businesses, NGOs and
government. Businesses should encourage and empower local people to participate and take ownership of the program, with a clear exit and handover strategy.
Patience is important, as some benefits can take years to materialize. An early-years education program will not lead to overnight change, but it could
eventually increase the literacy rate, in turn generating higher employment rates and reducing poverty.

Finally, it is essential to communicate the concept and the results of shared value to the local community, board, project partners, investors and
stakeholders. All parties want to see how achievements are improving the local economy and ­environment.

Treating social investment like any other commercial initiative allows companies to demonstrate the return for every dollar spent by identifying
underperforming programs, and reinforcing relationships with community stakeholders and partner organizations. Such discipline can help them combine cash
and employees’ skills to tackle some of the biggest challenges facing the world, secure a social licence to operate, and enhance their performance.

Rohitesh Dhawan is KPMG’s global mining leader for climate change and sustainability. He is co-located between KPMG’s offices in Johannesburg, South Africa, and London, England, and has spent time in mining company head offices and in the field working on issues related to strategy, social performance, environmental sustainability and governance. He holds a master’s degree in economics from the University of Oxford and is a fellow of the inaugural class of the Young African Leadership Initiative (YALI). Rohitesh was named one of the Mail & Guardian’s 40 Climate Change Leaders in South Africa and the South African Rising Star in the Professional Services category.